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Noble Corp v. Transocean

February 17, 2010

I wrote yesterday about the inevitable long-term rise in the price of oil, current recessionary pressures notwithstanding. I mentioned that at the end of the current leg down, I would be looking into buying leading oil-industry investments, such as Transocean (RIG).

Several people wrote to say that Transocean is one good idea, but that Noble Corp. (NE) is better. By almost any long-term valuation analysis, each driller is cheap these days. Which is cheaper?

12-Month Trailing Price-to-Earnings (P/E)NE: 7RIG: 8

5-Year P/E-to-growth (PEG)NE: 0.6RIG: 0.5

Price-to-Sales (P/S)NE: 3.0RIG: 2.2

According to Morningstar’s analysis, NE closed yesterday at a price 10% below its fair value of $46, while RIG closed yesterday at a price 29% below its fair value of $116.

While both are cheap, Transocean is a tad cheaper. Also, its specialty of deepwater drilling will be in high demand as conventional sources of oil dry up.

Disclosure: I do not yet own shares of either NE or RIG.

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